A new Hulu takes shape

A new Hulu takes shape

Netflix Inc. has long led the way in monetizing video on demand, and many OTT companies have tried to recreate its recipe. But the first way to profit is never the only way to profit.

Now Hulu LLC, the streaming video partnership between some of the largest networks on television, is starting to evolve its own unique approach, and it may usher in a new, more mature OTT 2.0 paradigm with it.

The news that Hulu is dropping its advertising-based free site, where viewers could access recently aired content from its linear TV partners, represents a first step in that evolution. That free content will migrate to a new Yahoo! Inc.-based platform.

It seems the going assumption that consumers are not willing to pay a premium for ad-free content is falling away. Services like Alphabet Inc.‘s YouTube Red, Pandora Media Inc.‘s subscription model and Hulu’s current subscription tiers are proving that consumers appreciate an ad-free experience, enough to pay for it.

With a changing attitude toward the value of content, and Hulu’s free site shuttering, some are wondering what other strategic assumptions will be on the chopping block, such as the need for originals.

Netflix now offers a catalog of scripted originals competitive with any traditional network, and it has spent billions producing that content. A recent Morgan Stanley survey suggests that consumers now believe Netflix has the “best” original content of any other premium TV or subscription video platform. About 45% of Netflix members said original programming was a major factor in their continued membership. Penciling that figure out, originals supported almost $2 billion of Netflix’s domestic 2015 revenue of $4.18 billion.

But Catherine Warren, president at FanTrust, said the move by Hulu to drop its free site and deliver a new platform experience in 2017 may see costly originals diminish, as well. Hulu has been creating its own originals, but they have not received the same consumer or critical admiration as Netflix’s. Thus, the platform could do something different.

“I don’t think we’re pulling away from [an original content strategy]; I just don’t see Hulu investing to the same extent that Netflix is investing,” Warren said in an interview.

Hulu has signaled that it is targeting a more personalized, customizable experience for its users, distinguishing itself that way rather than with expensive, award-winning originals, Warren said. By doing so, it will potentially find much less daunting competition than Netflix, as companies like DISH Network Corp., Sony Corp. and AT&T Inc. are only now building out similar platforms.

In fact, Hulu might not need the original content that Netflix needs. The platform is already a comprehensive home for much of the linear content that cord-cutters and cord-nevers have a hard time finding. It will make another massive step in its evolution in 2017 when it plans to add more live and local content. If the company can distinguish itself as a highly personalized platform for traditional TV content, its originals may not prove to be as important, just as its free site proved to be a vestigial relic of OTT 1.0.

“Their TV relationships … give them the potential to ‘do live’ very well,” Warren said. “To move its customer base to a subscription model, then distinguish itself through personalization and live programming, means they don’t have to dig too deep in their pockets to invest. … If it can pull all that off, Hulu will set itself apart in a really exciting way.”